Mumbai: Higher oil prices and weaker rupee could hurt Indian consumption, says Bank of America Merrill Lynch (BofAML), while maintaining its cautious stance on Indian equities, with Sensex’s December fair value of 32,000 points.
On Tuesday, BSE 30-share Sensex closed almost unchanged at 35,216.32 points. BofAML’s December fair value implies downside of around 9% from current levels.
In a note, BofAML analysts pointed that rupee has been amongst the worst performing amongst major currencies, and these trends could worsen as it forecasts a strong dollar.
Even if the trend doesn’t worsen, the increase in import costs likely will have lagged effects on the Indian economy in terms of lower aggregate consumption, lower corporate margins leading to further Indian earnings cuts, upward bias to inflation and higher fiscal stresses for government.
“The obvious trades in India, in our view – for investors concerned about further deterioration (not our base case) – would be to prefer exporters (IT, select auto and mid-caps), and rural income linked businesses (on likely agri-inflation) and cut discretionary (margin issues),” BofAML said in the note.